Various
Chambers's Edinburgh Journal, No. 439
PAPER-MONEY AND BANKING IN CHINA
The origin or prototype of so many of our European arts and customs has been found in the 'central flowery land,' that it is not surprising to hear of the Chinese having begun to use paper-money as currency in the second century preceding the Christian era. At that time, the coinage of the Celestials was of a more bulky and ponderous nature than it is at the present day; and we may easily believe that a people so cunning and ingenious, would contrive not a few schemes to avoid the burden of carrying it about; as the man did, who scratched the figure of an ox on a piece of leather, and went from door to door with that until he had found a customer, leaving the animal, meantime, at home in the stall. There was a deficiency, too, in the ways and means of the government: money was never plentiful enough in the imperial coffers. At last, to get out of the difficulty, it was determined to try the effect of a paper-currency, and an issue was made of assignats or treasury-warrants, which, being based on the credit of the highest authorities, were regarded as secure; which fact, with their facility of transfer, soon brought them into circulation. Of course, a good deal of legislation was expended on the measure, before it could be got to work satisfactorily, and it underwent many fluctuations in its progress towards permanence. The intestine wars to which China was exposed at that period, by overturning dynasty after dynasty, led one government to disavow the obligations of its predecessor, and the natural consequences of bad faith followed. After circulating with more or less success for five hundred years, the government paper-money disappeared.
This happened under the Ming dynasty: the Manchus, who succeeded, gave themselves no trouble to restore the paper-currency; on which the trading portion of the community took the matter into their own hands, and by the time that their Tatar conquerors were quietly settled in their usurped authority, the merchants had revived the use of paper. They were too sensible of its great utility not to make the attempt; and since that time, they have gone on without any aid from the state, developing their plans as experience suggested, and so cautiously as to insure success. This result is, however, far below what has been obtained by Europeans. In comparison with ours, the banking-system of China is in a very primitive condition; theirs is extremely limited in its application, each city restricting itself to its own method; and while the means of intercommunication are imperfect, there is little prospect of improvement.
One example may be taken as an illustration of the whole; and we avail ourselves of a communication made by Mr Parkes to the Royal Asiatic Society on the paper-currency of Fuhchowfoo, for the substance of the present article. As in other places, the system was started in the city of Fuhchow by private individuals, who began by circulating among each other notes payable on demand. As the convenience of such a medium became apparent, the circulation was extended, and ultimately offices were opened for the special purpose of issuing notes; but as the only guarantee for their security was the character of those who put them forth, the circulation remained comparatively trifling, until their credit was recognised and established. Not till the first quarter of the present century did the use of paper become extensive or permanent; and now, everybody in Fuhchowfoo prefers notes to coin.
As no licence is required, any one may commence the banking business, and at first considerable mischief resulted from this liberty. Speculators who forced their notes largely into circulation, not unfrequently met with a reverse, with the usual consequences of distress and embarrassment to their connection. Although this for a time brought paper into disfavour, it has now recovered, and the great competition is found to have the effect of mitigating the evils of failure. Where so many are concerned, individual suffering must be comparatively slight. The banks, moreover, are not banks of deposit; the proprietors prefer not to receive deposits, so that private parties run no risk of a great and sudden loss, beyond that of such notes as they may hold at the time of a stoppage. On the other hand, the usefulness of a bank is limited by this arrangement; there can be no paying of cheques; but very few of the banking establishments can transact business beyond the city or the department in which they may be located, and seldom or never beyond the limits of the province. Hence the convenience and safety of making payments at places remote from each other, through the medium of a banker, is almost unknown in China.
Within certain limits, the large bankers undertake mercantile exchanges; they also refine the sycee, or silver, for the receivers of taxes. The government will take no silver under a standard quality; the collector delivers his sycee to the banker, who weighs, refines, and casts it into ingots, for a consideration, giving a receipt, which is handed to the treasurer of the department, who calls for the amount when required.
The small banks transact their business on an extremely petty scale. On first starting in business, their notes are seldom in circulation above a few hours, and they have always to be watchful to avoid a 'run.' It is among this class that failures most frequently occur, the time of the crash being the end of the year, owing to the demand for specie which then arises. As a precautionary measure, some of them mostly circulate the notes of the large banks, which do not return to them as their own would. Their own are sure to come back once at least in the twenty-four hours, as the large banks make a rule of sending all petty bank-notes to their issuers every day, and exchanging them for specie or larger notes. The petty establishments resort to various expedients for the sake of profit; one is, to locate themselves in a good situation: if far from a large bank, they charge a higher rate of discount on notes presented for payment, than is charged by their more powerful competitor; and the people who live in the neighbourhood submit to this charge, rather than take the trouble of going to the large bank. On the contrary, if the great and the small are near together, the latter charge lower, and make their profit by placing base coin among the strings of copper cash which they pay to their customers in exchange for notes. The inferior cash is manufactured for the purpose, in the same way as Birmingham halfpence used to be for distribution by the keepers of toll-gates.
'Such petty chicanery is not viewed, as with us, in the light of an offence, since, from the exceeding low value of the Chinese cash—twenty-seven being only equivalent to a penny—those must be bad indeed which will not pass current with the rest; and, accordingly, the inferior sorts, when used in moderation, are accepted along with the better in all the ordinary transactions of life. The profits of these establishments must, therefore, be but slender—proportioned, however, to the extent of their dealings; and some of the smallest firms may not make more than half a dollar in the course of a day.'
'The banking establishments in the city and suburbs of Fuhchow,' says Mr Parkes, 'may be enumerated by hundreds. Most of them are naturally very insignificant, and the circulation of their notes exceedingly limited. Many of the outside notes will not pass current inside; and are only convertible at the place of issue. Such branches as these must be entirely superfluous, and might seriously inconvenience or trammel the transactions of the higher ones; but, in order to guard against encroachment from this direction, and as a self-protective measure, several of the leading banks of known stability co-operate with each other to keep up the value of their notes; and thus, by holding a strong check on the issues of those minor parties, effectually continue to regulate the whole system. There are thirty of these establishments inside and outside the city, all reported to be possessed of capital to the amount of from 500,000 to upwards of 1,000,000 dollars.
'These latter establishments command the utmost confidence, and their notes pass current everywhere and with everybody. They contribute mutual support by constantly exchanging and continually cashing each other's notes, which they severally seem to value as highly as their own particular issues. This reciprocal and implicit trust must add greatly to their solidity, and tend to prevent the possibility of failure. The chief banker gained his high reputation by a voluntary subscription, about thirty years ago, of no less than 100,000 dollars to the government toward the repairs of the city walls and other public works, for which he was rewarded with honorary official insignia, and the extensive patronage or business of all the authorities. These large banks are complete rulers of the money-market; they regulate the rates of exchange, which are incessantly fluctuating, and are known to alter several times in the course of the day. The arrival or withdrawal from the place of specie to the amount of a few thousands, has an immediate effect in either raising or lowering the exchange. The bankers are kept most accurately informed on the subject by some twenty men in their general employ, whose sole business it is to be in constant attendance in the market, and to acquaint the banks with everything that is going on, when they, guided by the transactions of the day, determine and fix upon, between themselves, the various prices of notes, sycee, and dollars. Their unanimity on those points is very remarkable; and they are all deeply impressed with the salutary conviction, that their chief strength consists in the degree of mutual harmony that they preserve, and the confidence they place in one another. These reporters are also very useful to new arrivals, in affording them guidance on matters of exchange, or in introducing them to the best bankers; and the allowances that the stranger makes to them for their assistance, and the banker for procuring him custom, constitute the gains of their calling. They have also to report the prices of silver every morning at the Magistracy, which, from its daily increasing value, has become an object of especial attention.' Twenty years ago, much discontent was expressed that silver, which had been worth 1000 cash per ounce, rose to 1500; now it is over 2000, owing to the continuous drain of the metal from the country.
Still, with all this, failures are rare. The petty banks are most liable to this reverse; and on such occasions, they generally contrive to arrange the matter quietly among themselves; but the whole property or lands belonging to the defaulters may be seized and sold to satisfy the claims of the creditors: the dividend is usually from 10s. to 12s. in the pound. Wilful fraud is seldom practised; the heaviest instance known, was for 70,000 dollars; from the year 1843 to 1848, there were but four bankruptcies, and three of these were for less than 6000 dollars. The defaulters frequently escape punishment owing to the high cost of prosecution. The large banks are safe; but at times, from false or malicious reports, are exposed to a sudden 'run;' a great crowd besets the doors when least expected, and numbers of vagabonds seize the opportunity for mischief and plunder. These outbreaks grew to such a pitch, that the magistrates now, whenever possible, hasten to the threatened establishment, to repress violence by their presence and authority. The rush, however, is so sudden, that before they can arrive on the spot, the mob has improved its opportunity for destruction, and disappeared.
Forgery is not often attempted, probably because it does not pay, owing to the fact of its being extremely difficult to circulate any but notes of small value. The penalty for this offence is transportation to a distance of three thousand le—about a thousand miles; or imprisonment or flogging, according to circumstances. We question if such an instance as the following ever occurred out of China:—'A forger of some notoriety having been several times prosecuted by the bankers, and with but little success, for he still continued to carry on his malpractices, they conferred together, and agreed to take him into their pay, making him responsible for any future frauds of the kind. He continues to receive a stipend from them at the present time, and is one of their most effective safeguards against further imposition, as it devolves upon him to detect and apprehend any other offender.'
Most of the bank-notes are printed from copperplates, but some of the petty dealers still use wooden blocks. They are longer and narrower than ours, and have a handsomely engraved border, within which are paragraphs laudatory of the ability or reputation of the firm. The notes are of three kinds: for cash, dollars, and sycee. The first are from 400 cash (1s. 3d. sterling), to hundreds of thousands, and are largely circulated in all the smaller business transactions. The dollar-notes, varying from a unit to 500, and, in some instances, to 1000, circulate among the merchants, their value continually fluctuating with that of the price of the silver which they represent. The sycee-notes are from one to several hundred taels (ounces), and are chiefly confined to the government offices, to avoid the trouble and inconvenience of making payments in silver by weight. Whatever be the value or denomination of the notes, the holder is at liberty to demand payment of the whole whenever he pleases, and receives it without abatement, as the banker makes his profit at the time of their issue. When notes are lost, payment is stopped, as here, and they are speedily traced, as it is the practice not to take notes of a high value—say, 100 dollars—without first inquiring at the bank as to their genuineness. But no indemnification is made for notes lost or destroyed by accident. Promissory-notes are the chief medium of interchange among merchants, who take ten days' grace on all bills, except those on which is written the word 'immediate.'
The rates of interest are, on lands and houses, from 10 to 15 per cent.; on government deposits, which the people are made to take at times against their will, 8 per cent.; on insurance of ships and cargoes, owing to the risk from storms and pirates, from 20 to 30 per cent.; on pawnbrokers' loans, 2 per cent. per month, or 20 per cent. per annum. Five days' grace is allowed on pledges; and if goods be not redeemed within three years, they are made over to the old clothes' shops at a settled premium of 20 per cent. on the amount lent on them. Pawnbrokers' establishments are numerous, and are frequented by all classes, who pawn without scruple anything they may possess. The banks, we are informed, 'keep up an intimate connection with the pawnbrokers, who make and receive all their payments in notes for copper cash, and will not take sycee, dollars, or dollar-notes—the former, lest they should prove counterfeit, and the latter, on account of the fluctuating value. They are very particular in passing the bank-notes, and will accept only those of the large banks. A notice is hung up in each shop, specifying what notes pass current with them; and when the people go to redeem the articles they have pledged, as they can present only those notes in payment, they have often to repair previously to the bank where they are issued, to purchase them, and, being at a premium, the banker thus gains his discount upon them. Of such importance is this considered, that, without the support of the pawnbrokers' connection, the business of a banker will always be limited. Indeed, many of the banks keep pawnbrokers' shops also; and the chief banker at Fuhchow is known to have opened no less than five of these establishments. This is on account of the high interest paid on pawnbrokers' loans.'